How Credit Unions Can Harness Industry and Demographic Trends
Article
MAR 7 2024
Study the competition, then play to your strengths
In this, the third and final article covering the trends most crucial to credit union growth (the first two articles are linked below), it’s time to acknowledge the elephant in the room: the ever-fiercer level of competition, not only from the big banks like JPMorgan Chase Bank but also from newer entrants, such as Rocket Mortgage. Like it or not, they and others are today’s competition for credit unions. We can’t avert our eyes from them.
To quote a famous passage from Sun Tzu’s “The Art of War”:
If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer defeat. If you know neither the enemy nor yourself, you will succumb in every battle.
Now, no credit union is going to win a hundred out of a hundred battles with any competitor, but the analogy still applies: know yourself, know your opponent, and you’re likely to win your share of the engagements (and maybe more than your share).
Rethink the very foundations of your marketing efforts
In terms of marketing messages, it’s instructive to study how Chase, Bank of America and Wells Fargo promote themselves. They talk a lot about how they can make people’s financial lives easier, simplify and consolidate, and get you to your financial destination. We take care of things for you quickly and easily, and we have the technology to do it, they say.
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What this has done is create a huge perceptual gap (in terms of mission and technology), especially with younger demographics. Until they address and close this gap, credit unions will be at a disadvantage.
From a marketing perspective, we think credit unions need to move away from a value proposition based on rates and fees alone. Instead, credit unions need to think about what makes them different from the big banks and the new players and get that message out there.
For credit unions looking to succeed in the mortgage purchase market, consider the challenge posed by Rocket Mortgage. Consumers are unlikely to get the lowest mortgage rate from Rocket and its ilk. And yet, the fact of the matter is, many would rather pay more for one of the single biggest purchases they’ll ever make than go through a somewhat more complicated, involved application process. It may not make sense to credit union managers, who live and breathe in basis points, but it’s how their potential members think.
We think credit unions need to market themselves as the place to find the right, trusted financial advisor. Start with the foundational messaging that credit unions exist solely to promote the collective good of their membership. Draw the distinction between that orientation and the shareholder-value-focused decisions made by the big banks and fintechs.
A high-tech, high-touch delivery infrastructure is key
It’s no secret that Chase is continuing to build branches as they move into markets across the United States. If they’re not already, they’ll probably soon be the country’s dominant consumer-banking organization. Many credit unions – especially larger ones – are also opening new branches, while others are contracting. Whether they’re adding locations or reducing them, however, it’s vital that credit unions evolve their delivery infrastructure.
Putting the priority on engaging members (and potential members) in a high-tech, high-touch way is the key. What do we mean by “high tech, high touch”? Isn’t the lesson of the big banks that high tech is enough? After all, who really goes into a Chase branch to get trusted financial advice?
The notion of high tech, high touch goes back at least to the 1980s and John Naisbitt’s influential book, “Megatrends.” Naisbitt proposed that as the world goes more high tech, high touch would become more important, not less so. That’s because technology can raise more issues and questions than it answers. We think that insight is more applicable today than ever.
Technology, in the form of online banking and the associated apps, is now table stakes. Everyone simply expects it, and any financial institution, including credit unions, that can’t offer robust technology is never really in the game. The high touch part, however, is the secret weapon credit unions can and should deploy to fight the big bank threat.
There are so many ways a high-tech, high-touch strategy can be put into action. Consider the example of ABCO Federal Credit Union in New Jersey. As CEO Jill Peterson observed during a panel session I hosted at Forum 2023:
Our goal is to migrate our branches from being a transactional location to a relationship location. I don’t want people coming to my branches just to deposit a check, but to apply for a loan, talk about opening an account for their kids, to expand the relationship. I want it to be a more conversational place. Even the Gen Zs and the millennials want to speak face-to-face with somebody when they’re applying for a mortgage or doing something else big with their life.
Further to delivery infrastructure, Vibrant Credit Union in Illinois has an illuminating story. It’s gone from 18 to six branches in the last three years and will probably reduce that number further. And yet, as President and CEO Matt McCombs said in a Forum 2023 session, Vibrant is still extending its reach:
The cost to operate a branch today has never been more expensive. We had to find a different way to engage the community than what everyone else was doing. So, we looked at retail outlets or businesses we could get into that would give us a tangible presence, and we started on the restaurant side. We opened one full-service coffee house/restaurant location in Moline in 2022, and a Bettendorf location in late 2023. More are in the works. Every one of them has an interactive teller machine in it, so it’s technically a branch. We see about 300 customers a day at each location, two-thirds of whom are not existing members of our business. We can drive 10 new accounts a week out of one affordable location.
Shift your emphasis from deposit management to holistic financial services
Finally, we think credit unions need to change their orientation from one of deposit management to one of providing holistic financial services to their members. Younger generations don’t want to separate their banking from their investments. They prefer a commingled approach, which we see in the popularity of apps like Robinhood and Acorn.
To make the move to holistic financial services, we recommend credit unions get in the business of providing their members the financial planning and wealth management tools they need.
The idea of wealth management no longer applies only to high-net-worth individuals. Credit unions can and should be places members go to for services that will help them achieve their financial goals, and today’s technology solutions can empower them to make these kinds of services more widely available than they have been.
Not convinced that credit union members are good targets for wealth management services? Consider that, contrary to popular belief, credit union members on average earn more than bank customers. And as the transfer of wealth from the boomer generation to younger generations accelerates, Gen X and millennials especially will be looking for help. What better way to attract new members from younger demographics than to meet them where they are, in their moment of need.
Leverage the power of your unique mission
It’s a lot to ask: know yourself and the competition; adopt a new marketing mindset; embrace high tech, high touch; and move to holistic financial services. We think, however, that each of those priorities meshes seamlessly with the unique position credit unions have in the marketplace of financial services providers.
Vibrant Credit Union President and CEO McCombs described very well the credit union’s unique mission. Keep Matt’s words in mind as you move forward, and you’ll always have a guiding North Star:
Credit unions are who we are, not what we do. That’s the differentiator. One of our core values is the collective good. Our message has to be about how we are still doing this because of that collective good mindset, instead of a shareholder mindset.
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