Over the last decade, the function of a credit union branch has shifted and there have been two contributing factors: The global pandemic and expedited digital transformation.
First, the pandemic has drastically changed the way members expect to bank. At the height of the pandemic, many branches closed or reduced traffic. Members that wouldn’t typically have chosen digital banking opted for it to meet their banking needs. The shift away from branch-based services during the pandemic helped baby boomer and Gen X members adopt digital banking when they may not have otherwise.
Even without the impact of the pandemic, the transformation to digital-first processes and products has been underway for some time. This transformation has steadily been shifting the branch’s purpose away from basic transactions to more sophisticated member interactions. The pandemic merely accelerated this shift, and it is becoming vital for credit unions to embrace digital transformation to stay competitive.
Competing for Business
Over the last several years, credit union competition has evolved and expanded. Banks were once the primary competition for credit unions. Now multiple, non-traditional, digital banking options are making it increasingly difficult for credit unions to compete. Some of these branchless competitors include:
- Fintech companies;
- Neobanks;
- Digital-only financial institutions;
- Digital-first lenders and investment firms; and
- Mobile payment platforms.
As competition increases and continues to expand into new markets, there are resources and strategies that credit unions can leverage to maximize member service and profit. Here are five growth strategies to help credit unions of all sizes maintain their competitive edge.
1. Fast track digital transformation. Some may say that digital transformation is beginning, but we argue that it’s already here. Although the pandemic highlighted the need among credit unions for digital transformation, it was already apparent that credit unions needed to adapt digitally.
Digital transformation in 2022 is being fueled by artificial intelligence. Conversational AI is becoming the norm in both business infrastructure and consumers’ daily lives. AI deploys data to replace and improve business functions and is impacting the credit union industry by improving operations, member service and digital tools. Amplifying AI technology will enhance member relationships and can help credit unions prepare for future branch disruptions.
2. Centralize member data. Your members’ data can help your credit union identify the most profitable members and predict their behaviors, as well as uncover red flags for potential risk.
Prioritize member relationships and continue to generate revenue while mitigating risk.
By Traci Mottweiler CUTimes
Centralizing member data is crucial for digitally transforming your credit union, and to enhance and streamline risk determinations, growth opportunities and member communication. Once data is centralized through a single data engine, it can then be automated to predict member behaviors, giving you a 360-degree view of your member.
These analytics can also point to increased or decreased loan risk for specific members or groups of members.
3. Mitigate lending risk. In a turbulent market, identifying and avoiding loan risk is vital for portfolio health and growth. While it is promising that the average FICO has increased since the pandemic, according to FICO, this cannot determine future payment ability or overall loan risk. Relying on the FICO score alone could lead to missed opportunities for underserved markets or additional risk for high-risk borrowers. Using member data and a proven forecasting solution can help mitigate lending risk. Additionally, consider adopting new protection solutions that can be bundled with loan products, such as unemployment protection and loan warranty, to protect both your members and your portfolio.
4. Drive alternative revenue. It is necessary, but challenging, to balance revenue growth with risk protection. Offering deposit solutions and enhancing online banking capabilities (such as remote deposit capture) growth can offset loan risks.
In addition to loan and deposit revenue, noninterest income can help drive income and maintain profits. Protection products for auto loans and mortgages can help protect members during financial crisis and uncertainty while addressing margin compressions and liquidity concerns.
5. Evaluate industry partnerships. As credit unions look for ways to streamline processes and leverage human capital, review what new solutions are available in the marketplace to outsource. Since the pandemic, many credit unions are outsourcing aspects of business that previously wouldn’t have been considered, including AI, data analytics and modeling, the call center, collections and recovery solutions. Outsourced solutions should always support your credit union’s strategic objectives.
Despite a turbulent market and shifting member expectations, the credit union mission holds fast. Prioritizing member relationships and continuing to generate revenue while mitigating risk are strong growth strategies that will help credit unions maintain their competitive edge.
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