digitization-in-the-credit-union-industry

The pandemic year wasn’t great for many sectors. But for the credit union industry, 2020 accelerated the transition to digital. That’s not a bad thing. When stay-at-home mandates forced customers to stop coming into the branches, they were compelled to choose other channels. Some used ATMs, others drive-in banking, and still others opted for video banks. But the channel of preference was digital. Whether the credit unions were ready or not, they came online in droves.

The Role of Credits Unions

Since credit unions are owned and operated by their members, they tend to offer higher interest rates on deposit vehicles, such as savings accounts and CDs, as well as better loan rates. Also, they are tax-exempt, non-profit organizations, so the fees are lower. Credit unions reinvest any earnings back into their members so they can afford to eliminate or greatly reduce fees. 

Credit unions not only pride themselves in their commitment to the membership, but they also serve an important role in the communities in which they operate. Many credit unions offer scholarships, invest in social causes, and contribute to local sports programs, hospitals, literacy initiatives, and the like. Credit unions may also provide education for their members in retirement, investment, budgeting, and other financial literacy programs. All of these actions engender customer loyalty and provide an important social benefit to members.

Credit Union Industry Trends

There are several credit union industry trends that will facilitate digital adoption. Among these are artificial intelligence, machine learning, cloud computing, and the previously mentioned digital onboarding. It’s important for credit unions to take advantage of platform technology. It not only reduces the friction associated with account opening but frees up scarce IT resources for mission-critical work.

The key thing for credit unions is how they use data and technology to provide valuable insights into customer behavior and differentiate themselves from the competition.

Credit Union Challenges in the Digital Age

Financial institutions are rapidly evolving. These past few years accelerated the pace of innovation and revealed where credit unions have the biggest challenges. The fintechs, neobanks, and challenger banks are using the latest and greatest technology where most credit unions are not.

Forced Digital Transition

Admittedly, many credit unions weren’t ready for the pace of digital transformation. Sure, everyone was strategizing about it and planning for it … someday. But no one expected the shelter-in-place mandates that positioned digital as the only option nearly overnight. Fortunately, customers didn’t seem to struggle too much with moving to digital. In fact, many plan to keep using online apps for the foreseeable future. 

But even though some 88 percent of customers are now online, a Forrester survey revealed that less than 29 percent were happy with what they found during the transition. That’s the bad news. The good news is that this represents a tremendous opportunity. There’s nowhere to go but up. Credit unions have a long legacy of delivering better customer service than big banks. It’s a legacy worth preserving.

Customer Satisfaction is Down

Credit unions have been outperforming banks when it comes to customer service since banks fell out of favor following the financial crisis of 2008. The decline for credit unions began in 2019 when their score dipped one point below banks. In 2020, credit unions dropped to a historic low, 10 points below the peak in 2011. This isn’t good for credit unions, particularly in the current competitive environment. The struggle to provide a seamless customer experience against a wide field of new entrants is just the beginning. 

The customer service that credit unions deliver has been largely dependent on the branch. With the transition to digital, credit unions must find a way to replicate this personalized experience online. 

Innovation is Lagging

In comparison to other financial institutions, the pace of technological changes is lagging for credit unions. These technologies include digital customer onboarding, artificial intelligence, cloud computing and marketing automation. There appears to be a glimpse of hope on the horizon.

However, according to a recent survey, forty-six percent of credit union managers report that they were quick to innovate new solutions in 2020 after observing the market trends. Credit union members had a different perspective. They reported that the technology solutions that their credit unions developed in 2020 were, in fact, not innovative at all.

Digital Opportunities for Credit Unions

Embedded in every challenge is an opportunity. Credit unions today must face the future and be prepared to adopt innovative technology that their members want. This digital transformation means the use of leading-edge technologies such as artificial intelligence and machine learning to enhance the member experience.

Customer-Centric

Even though customer satisfaction appears to be waning a bit, credit unions are — and will continue to be — member-centric. And that’s exactly what the digital experience is all about. Banks will always optimize revenue. Credit unions prioritize people. Using the digital onboarding solution, Instnt Accept, credit unions can digitally onboard up to 97 percent of good customers. The onboarding process is the key component of a KYC and AML compliance strategy, as well.

Product and Service Offerings

Credit unions have a long legacy of providing products and services to their members. They do this not because these offerings are profitable but because among the deeply-held credit union values is the stewardship over member assets. If offering credit monitoring provides value to customers, credit unions may offer the service free of charge. Further, they have made a personal investment in understanding what their members want. They can now apply these lessons in the digital arena. They already know how to create a personalized face-to-face experience. 

Now the challenge is to humanize that experience across digital channels using data and machine learning. If they can deliver the experience efficiently, they gain through the ability to retain and deepen customer relationships. This is a win for the credit union and a win for their members.

Longer Planning Horizon

Unlike traditional banks, credit unions typically take a longer-term view when it comes to planning. Since they are owned by members, they don’t need to worry about meeting short-term shareholder expectations like banks do. This gives them more latitude for long-term digital transformation roadmaps. They can deliver improvements over two, three, even five years if that’s what seems most prudent. Of course, credit unions must be careful to not allow lengthy planning horizons to delay innovation.

Digital Partnerships

Credit unions will increasingly partner with fintechs to enhance their digital offering. Working with customer onboarding and fraud prevention companies like Instnt is another strategic partnership to make the customer experience frictionless. It’s easy, consistent, and reliable, using artificial intelligence and predictive analytics to ensure that you only bring good customers on board. 

Bringing the Future of Digital Closer

To remain competitive, the most progressive credit unions will need to invest in technologies that make customers’ lives easier. This includes an end-to-end digital experience as well as the intelligent use of data and analytics to provide real-time recommendations. It’s not so much about new products and gee-whiz innovation. Rather, it’s about providing an experience that engenders customer loyalty and attracts new ones. It’s the digitalization of the traditional credit union customer-centered focus.

Customers, even credit union customers, are tricky. They will find what they need, even if that means taking their business elsewhere. Onboarding is one of the most critical components in the end-to-end customer experience. If your credit union is still using outdated technology and manual processes, there is a better way. Contact Instnt today. Discover how you can keep more customers while satisfying KYC and AML requirements.