Understanding How Today’s CU Revenue Generation Also Drives Membership Success

For years, credit unions have been financial pillars of their communities, offering community members personalized service and competitive rates. However, modern credit unions face a myriad of economic challenges and competitive pressures that demand innovative solutions for sustainability and growth. For members seeking financial programs for auto loans, credit unions have several options that can meet member needs, offer a strategic avenue to bolster revenue and fortify their business models.

These services are especially critical as the loan market has become increasingly competitive. According to recent data reported by Auto Finance News, captives held the top spot in new-vehicle financing in the fourth quarter of 2023 with 61.2% of the market, but credit unions held the largest share of used-car lending at 29.6%, compared to 31.7% a year ago.

Economic Challenges Facing Credit Unions

Credit unions are encountering a range of economic hurdles that necessitate adaptability and resilience. One of the primary challenges is their willingness to take on additional risk in recent years when interest rates began to rise, leaving their financial bottom lines exposed to the realities of delinquencies and loss rates.

Moreover, the digital transformation sweeping the financial industry demands substantial investments in technology infrastructure to remain competitive. Compliance costs also continue to rise, imposing an increased burden, especially on smaller institutions with limited resources.

The recent moves by the CFPB and its efforts to thwart “junk fees” from financial institutions is problematic on two fronts for credit unions: Many disagree with the CFPB’s view because these fees can be critical toward a credit union’s bottom line, and most face technological challenges in implementing system-wide changes to accommodate any new rulings.

Lastly, demographic shifts and changing consumer preferences further require credit unions to redefine their overall value propositions and member engagement strategies. However, many credit unions already see the importance of targeting a younger generation, such as Gen Zers who recognize today’s considerable affordability issues and seek solutions that can help protect the value of their possessions.

Competitive Pressures in the Financial Landscape

The competitive landscape for credit unions is increasingly intense, with traditional banks, online lenders and fintech startups vying for market share. Larger financial institutions wield economies of scale and technological prowess, posing significant competitive threats. Fintech disruptors leverage innovative digital platforms to offer streamlined services and cater to niche markets, challenging the traditional banking model.

In addition, the rise of consumer-centric financial apps and payment platforms heightens the demand for seamless, user-friendly experiences, compelling credit unions to enhance their digital capabilities and customer interactions.

Vehicle Protection Plans Can Help Credit Unions

Because of these challenges, credit unions continue to seek ways that enable them to remain competitive by serving the needs of their membership through product offerings that boost member satisfaction, foster solutions for today’s affordability crisis and strengthen the bottom line.

Protection products such as ancillary offerings and mechanical protection plans for vehicles have emerged as a strategic opportunity for credit unions to diversify revenue streams and enhance member value propositions. Vehicle ownership remains a significant aspect of consumers’ financial lives, representing a prime market for credit unions to target. By offering comprehensive mechanical protection plans for automobiles, credit unions can address members’ needs for peace of mind and financial security, and overall affordability concerns.

Vehicle protection plans encompass a range of services, including mechanical breakdown coverage and GAP insurance. These plans provide members with financial protection against unexpected repair costs and vehicle depreciation, enhancing their overall ownership experience. By partnering with reputable providers with comprehensive training programs for associates, credit unions can offer competitively priced protection plans that align with members’ budgets and preferences.

Vehicle protection plans also serve as a source of additional revenue for credit unions, complementing their core banking products and services. The sale of protection plans generates additional income and strengthens member relationships through value-added offerings. By bundling protection plans with auto loans or as standalone products, credit unions can differentiate themselves in the marketplace and capture additional revenue, while presenting affordability solutions for their members looking to protect their investments.

Catering to the Younger Credit Union Generation

One age group in particular – Gen Z – may hold the key for credit unions. It has been documented through expert industry observers that Gen Z customers are the best overall caretakers of their vehicles. Gen Zers have responsible attitudes toward protecting the value of their vehicles as they recognize the present-day challenges with affordability.

Experts also believe that individuals from this demographic seem to view their vehicle as an investment in their future. They are concerned with the quality of the repair work and parts for their vehicles and are willing to voice their view on it. Experts believe this mindset stems from their overall attitude they were raised through during uncertain economic environments, such as the Great Recession.

This is an important consideration for credit unions, since many believe that younger generations are vital for credit union success, with some going as far as to say that Gen Z should be dubbed the Credit Union Generation.  While credit union executives understand they can’t build a business model around one demographic, they can refocus their business models around what’s good for their members as a whole.

In the face of economic challenges and competitive pressures, credit unions must explore innovative strategies to strengthen their business models and enhance member value propositions. Products like vehicle protection plans offer a compelling opportunity for credit unions to diversify revenue streams and deepen member relationships, especially in front of a younger generation of car buyers.

By leveraging protection plans strategically and prioritizing member-centric approaches, credit unions can navigate the evolving financial landscape and thrive in the digital age. Embracing the potential of vehicle protection plans positions credit unions as trusted advisors and champions for the financial well-being of their members of all age groups.

Mark Edmundson is Vice President of Sales, Financial Institutions for Protective Asset Protection, a Chesterfield, Mo.-based provider of F&I programs offering vehicle protection plans, GAP, ancillary products, training and other services through credit unions, financial institutions and vehicle dealerships.