Banking

Consumers believe credit unions lag digitally. Do they?

A recent survey found U.S. credit union customers were more satisfied with their financial institution than customers at large national banks, by 13 percentage points, yet consumers hold accounts far more often with large nationals, by 24 percentage points.

Major reasons, according to the survey by digital consultancy Mobiquity, appear to be the hassle of switching accounts and the limitations of smaller institutions’ digital offerings compared to national banks. The survey was conducted in December 2021 and included more than 1,000 U.S. consumers.

Experts generally agreed that credit unions’ size, rather than their nonprofit status, explained why they lag behind large banks in terms of digital transformation. Some said the best thing they could do about it was seek partnerships with fintechs, and others promoted a focus on other factors they could use to differentiate themselves from banks.

According to Mobiquity’s survey, 48% of consumers aged 18 to 29 strongly agreed with the statement, “I’d be more likely to switch to a credit union or small bank if the online banking was as good as the services at a larger, national bank.”

However, many in the industry rejected the premise that credit unions actually lag behind large banks in digital offerings.

“Credit unions as a whole are perceived to lag behind, but that is more due to a lack of awareness as to what is happening in the credit union industry as a whole as the larger banks more naturally interact with more consumers due to their size and get more national press,” said Ben Maxim, vice president of digital strategy and innovation at Michigan State University Federal Credit Union.

Credit unions have a motivation to modernize, according to Greg Mesack, senior vice president of government affairs for the National Association of Federally-Insured Credit Unions, and the struggles credit unions have with digital transformation is not unique.

“I think a lot of times it has to do with the size of the depository institution,” Mesack said. “I think a credit union and community banks probably have equivalent digital services, but I think both of them are going to be challenged to compete with a Bank of America or Wells Fargo.”

The median credit union has a staff of only 10 people, according to Curt Long, chief economist and vice president of research for NAFCU. Despite their generally small size, a vast majority of institutions have adopted key digital banking technologies. For example, 96% of credit union members have access to remote deposit capture, according to Long.

Others went as far as to say that credit unions outperform similarly sized banks in terms of their digital products.

“In our experience, credit unions are often more digitally savvy than their banking counterparts, especially when we’re talking about community institutions,” said Dan O’Malley, co-founder and CEO of digital lending platform Numerated. “I think credit unions’ focus on their members is what has led them to always be forward looking when it comes to technology.”

Greg Michlig, executive vice president and chief engagement officer at Credit Union National Association, also said credit unions have “superior digital offerings” when compared to like-sized banks — but maybe not large banks.

“Scale and resources, from both an operational and strategic standpoint, underpin any financial institutions’ ability to offer a robust digital platform,” Michlig said. “Many credit unions direct a proportional amount of resources towards digital, but with a restrictive capital model based on the not-for-profit credit union charter, credit unions have fewer resources available than the large banks.”

For credit unions hoping to improve their digital offerings, forging a partnership, rather than building the solutions themselves, is often the best approach. Many credit unions work with fintechs to bring their members the services they would get at a large bank, according to Maxim. He described a “mission alignment” in such partnerships but said the stories of such partnerships are not told as widely.

“Credit unions also do not have the financial resources of many of the banks that exist so they can often ‘buy their digital savvy’ whereas credit unions often need to build it or partner with a mix of partners to achieve the same results,” Maxim said.

Gabe Krajicek, CEO of Austin-based financial services company Kasasa, said partnering with fintechs like his can allow credit unions to focus on their own area of expertise while letting fintechs tend to their digital needs.

“Their ability to meet consumers where they are, at any point in their financial journey, leaves credit unions siloed and struggling to find innovative ways to compete for market share,” Krajicek said.

Krajicek also highlighted a finding from the Mobiquity survey that found 70% of consumers said they would prefer to do all their banking with one institution if that institution provided everything they wanted in an easily consumable format.

Despite all the apparent shortcomings of credit unions, 89% of respondents who said they bank with one were satisfied or highly satisfied with the experience — more than the satisfaction ratings for community banks (86%), digital-only banks (77%) and large banks (76%).

However, that focus on customer satisfaction is “myopic” and “a trap for organizations in our industry,” according to Dan Ziniti, chief strategy officer for Massachusetts-based Hanscom Federal Credit Union. The institution reports $1.7 billion in assets and over 90,000 members.

“Satisfaction is a reflection of member service and we’ve seen that service is not the differentiator that people tend to think or want to think that it is,” Ziniti said. “How do we know this? Because that’s precisely what has allowed the worldwide and nationwide banks to succeed in capturing as much market share as they have — they manage to only the level of service necessary to maintain that market share — and it’s far lower than many of us would expect or demand as consumers.”



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