Boomers Are Not Enough: How to Attract Younger Consumers

America’s credit unions are performing well, with loans growing more than 8% a year since 2018 and deposits 9%, according to 2023 data from the NCUA. Both figures are slightly higher than those delivered by banks. Member satisfaction is generally high, and credit unions have maintained their market share, at 15%. They have long played a critical role in the U.S. financial sector.

But will it last? Returns on assets fell 23% last year, the NCUA reported, and the number of credit unions has shrunk 3% since 2018, while their share of new accounts has also declined. It’s certainly not good news that almost all the growth is coming from the baby boomers (born 1946-65) – in other words, people in or near retirement. From 2015-23, the share of credit union membership among Gen Xers (born 1966-80) shrank by nine percentage points, and that of millennials (born 1981-96) by three. The share of Gen Zers (born starting in 1997) has stayed stable but at a low level (10%, compared to 39% for baby boomers). That is not a recipe for long-term success.

In short, credit unions need to attract younger members, or risk fading into irrelevance. There is a solid foundation on which to draw. Not-for-profit and member-owned, they are seen as offering good value and being community minded, helping to serve communities that can be overlooked. Those attributes, McKinsey’s most recent Consumer Financial Life Survey found, are of particular significance to Gen Z and millennial respondents.

But that is not likely to be enough. For example, Gen Zers who have switched financial institutions cite better customer service and lower interest rates as important reasons. With this context in mind, here are five ways credit unions can attract younger people.

1. Meet younger consumers where they are. That means cyberspace. When it comes to exploring and then buying, young people rely on social media, online reviews, blogs and websites. Millions of them follow “finfluencers,” who offer advice on personal finance. Done well, such campaigns generate a healthy return on investment. With their member-owned, not-for-profit nature, credit unions can create trusted content that stands out from the typical finfluencer hunting for clicks. Some credit unions, for example, have developed online financial education courses; these could be repurposed into social media content.

2. Offer more personalized products and services. Younger consumers take customization for granted, and as consumer data has become ubiquitous, real-time personalization is expected. To compete with banks, which are ahead in this regard, credit unions need to build an agile digital marketing model equipped to offer timely and customized services. Developing distinctive, targeted loyalty and rewards programs could help credit unions to connect with existing members in distinctive ways, and appeal to new ones. The use of generative artificial intelligence (gen AI) can enable such marketing at a level of personalization and pace never before possible.

3. Upgrade technology to enable digital strategies. Many credit unions are hampered by creaky technology platforms, even as the biggest banks have aggressively modernized. To catch up, or just stay in the game, credit unions need to embrace digitization. For example, one of the top reasons millennials said they switched from credit unions to banks is that they thought banks provided better mobile and online services. For both Gen Zers and millennials, an excellent mobile app was the single most important factor in choosing a credit card.

One way to modernize is to use modular product architecture and hyper-configurability to create new products faster and to speed up loan decisions. Another is to team up with fintech partners and use API-first architecture to enable embedded banking. A third is to integrate financial products into third-party platforms to allow for services such as buy now, pay later (BNPL).

4. Use AI to improve the member experience. Young or old, consumers expect great service – and AI can help. For example, 71% of Gen Zers  want to talk with a human when a difficult issue crops up, a McKinsey report found. AI can be used to handle routine enquiries, freeing up staff to deal with thornier problems. Globally, AI could deliver as much as $1 trillion a year in additional value for the banking sector, according to McKinsey’s executive’s AI playbook. As with banks, credit unions should think in terms of the “four Cs”: Customer engagement, coding, content and concision (synthesizing insights from data). It’s important to consider how all this can be knit together, rather than launching one isolated initiative after another.

5. Build scale and capabilities. Consolidation is likely – almost 4,000 of the country’s 4,600 credit unions have assets of $500 million or less. Given the need for investment and heightened competition, the case for scaling up through M&A is compelling – and perhaps awkward. Such deals could require making difficult decisions on branches and headcount – moves that might not always align with the community-oriented mission of credit unions. On the other hand, by acquiring fintech companies, credit unions can gain access to innovative technologies, digital capabilities, talent and customer segments. It may also be possible to fund innovation through VC-like partnerships or subsidiaries. These can allow credit unions to re-invest more earnings, deploy their limited capital over a longer period, and eventually to cash in at the right time.

Since the first U.S. credit union was established in 1908, these institutions have become a beloved and important part of the country’s financial landscape. To build for the next century, they need to acknowledge that a business model based on an aging membership is not a promising one. That is why credit unions need to do more to attract tomorrow’s financial services consumers. After all, as financial statements often say, past performance is no guarantee of future results.

Peter Noteboom is a senior partner in McKinsey & Company’s Seattle office.

Atanas Stoyanov is a partner in McKinsey & Company’s Miami office.