Are credit unions relevant in today’s social and crowded world?
Competition from credit unions is not limited to the big American banks. Recently in San Francisco, Bank of India billboards were seen marketing the convenience of deposits to overseas accounts. As technology evolves, our idea of member service will need to evolve to remain relevant in today’s social, global and participatory world.
In support of the Don’t Tax My Credit Union movement, I emailed my US Senator explaining how credit unions play a vital role in the financial lives of 96 million members. I added how credit unions innovated in the old banking industry. After submitting, I sat there contemplating the relevance of credit unions today with the emergence of so many innovative startups related to the banking industry.
Are Credit Unions Relevant Today? Absoutely. Will credit unions remain relevant? It depends. Credit unions praise their excellent member service, higher savings rates, lower loan rates and fees, but never their innovation and simplicity. We can discuss smart marketing to attract deposits and loans, but there needs to be a discussion about real innovation in products and services.
Credit unions compete with large and small banks, retailers and finance companies. As an insider of tech startups, I can tell you that a growing number of web and mobile startups are innovating in the banking experience. These startups share the founding principles of credit unions.
So what happened? We did nothing. The world has changed and we have remained humble.
Mobile banks for smartphones
Welcome to a new group of smartphone banks rivaling online banking veterans Ally Bank and Capital One 360. These smartphone banks have built their infrastructure around user experience and made it easy to join, deposit money. checks and access to cash. They iterate quickly to respond to changing trends.
For example, Simple, a smartphone banking startup, offers quick and efficient one-page registration. While another uses computer cameras to take a facial photo and capture driver’s license data for identity verification.
How many credit unions still require photocopies of identity and inked signature cards?
Wallet and smartphone payments
Profit-generating debit cards are going out of fashion and will eventually disappear. Financial institutions that detect declines in revenue have responded by instituting annual and additional fees to compensate for lost revenue instead of innovating.
Wallets for smartphones, such as google wallet, will replace our need to carry multiple debit or credit cards. In fact, a future exists when digital wallets connect directly to checking accounts bypassing your credit card processing entirely.
In addition, the need to connect to online banking services will decrease. People will be used to paying utility bills and friends using online payment gateways like Pay Pal and mobile payment options like Square.
Crowd-Lending and Peer-to-Peer
Crowdfunding is a growing challenge for credit unions. It is a loan alternative for people who want to consolidate their debts and take out loans for home renovations and the purchase of a car.
The payday loan industry is a multi-billion dollar business. The unbanked, low-income users of payday loan services are the same people that many credit unions aim to help. Tech startups have seen the potential to innovate in the industry and generate profits.
Next page: Tools discussion
Financial literacy, tools and advice
Members research financial information and credit unions are positioning themselves as experts in financial literacy. The growth in content consumption supports people’s natural inclination for knowledge. However, consumer content consumption has shifted to blogs, tweets, images and videos.
The growth of online and mobile financial education startups is supporting this shift in consumer behavior. People interact socially and use apps to learn more about money. The threat to credit unions is the potential to be forgotten.
What Can Credit Unions Do?
Credit unions can turn into a place to put money away like the old mattress. But we need to engage with members and become competitive again through innovation.
It’s not just about adding features like personal finance management, mobile apps, or online deposits. Re-evaluate the strategy to integrate simplicity, innovation and technology.
Come back to simplicity. The products, the language, and the complicated terms don’t resonate with people. Are you still creating elaborate programs that are not easy to follow? Can your member describe your product in 15 seconds?
Make your products easy and simple. Simple to join, understand and use.
Resolve the original credit problem. Credit unions were founded to provide credit. Many credit unions have not evaluated their loan guidelines for decades. And more recently, some have added more restrictions on loan approval.
I understand the importance of strong loan guidelines. The created reality is that these members are now looking to your new competition.
Make service more than just name recognition and a smile. The feeling of welcome members get when they walk into a branch should be the same warm, fuzzy feeling they get when interacting with your services. Integrate user experience into product and service design with intuitive and fast user interfaces.
Chat with your members on social networks. Create educational content, share content, and build community. Your members don’t want to know about the new checking account. But, they want to know how to manage checking accounts and avoid fees.
Finally, it is acceptable to charge members for the use of the product. You can charge them slightly more if the product has value.
Credit unions often confuse the word “not-for-profit” with “we shouldn’t make money with members”. This is incorrect.
Credit union leaders have to accept that profits are good because they are reinvested in members, resulting in better rates and lower fees. Or better yet, reinvested in innovation aimed at making members’ lives easier and richer.