How credit unions can get the most out of their digital banking platforms

Credit union membership grew last year at its slowest pace since 2014—and it’s no coincidence that the drop came alongside a global pandemic that catalyzed a widespread shift to digital banking.

Credit unions historically have lagged behind their bank counterparts in digital adoption—more than half showed no digital progress between 2014 and 2018—instead relying on longstanding customer relationships, better customer service, and low fees. But amid evolving customer expectations, rapid advancements in digital technologies, and the arrival of new competitors, credit unions have no choice but to adopt strong digital capabilities to attract and retain members. 

The good news is that most credit unions saw 2020 as a wakeup call: According to a recent survey of more than 100 credit union executives, nearly half said they were quick to innovate new solutions after observing market trends. The investments made in the past 18 months represent a promising first step, but credit unions can’t let them go to waste. To truly differentiate their organizations for the long term, they’ll have to learn how to successfully implement and develop their digital tools. 

With the right operational and technology guidance, credit unions can make better digital experiences a reality. In what follows, we’ll discuss the new landscape for credit unions, the key obstacles they face in digital adoption, and best practices for getting the most out of their digital platforms.

Why strong digital capabilities are now a must-have 

Two parallel forces are putting immense pressure on credit unions to transform their digital banking experiences: rapidly changing customer expectations and a shifting banking landscape. 

The first is apparent to all who moved to a more remote, virtual environment during the pandemic. We began relying on digital platforms for our work, healthcare, and any number of other areas—banking included. A fall 2020 survey revealed that 50% of consumers were using digital banking applications more than they were at the start of the pandemic; 87% said they would continue to even after it ends. 

At the same time, what we’ve come to expect from leading digital experiences in other areas of our lives (e.g., Amazon, Instagram) are now being compared to those in banking. These evolutions figure into today’s banking landscape, one that requires credit unions of all sizes to adopt cutting-edge digital capabilities to set themselves apart from the competition.

For instance, customers’ reliance on digital has blunted the edge that credit unions may have had by way of local allegiances and in-person customer service. Our latest report revealed that 78% of small business owners believe a completely digital banking service would improve their banking experience, another 63% said they visited their bank’s physical branch a few times a year or less, and half said they would like to apply for their next loan or account via mobile app.

This shift, combined with branch closures, has increased the need for an efficient digital presence to maintain high-touch service levels. A bank’s digital strategy must also have security at the forefront—in the initial months of COVID-19, banks saw a 238% jump in cyberattacks, driving greater concerns with privacy and security. 

In the race to create successful digital capabilities, big banks—with the hefty budgets to invest in building these products—have the advantage. And as consolidation continues, the environment will be increasingly populated by these big, homogeneous banks and their large IT budgets. 

But that’s not all. Big tech, foreign IT service companies, and niche fintech players are launching banking products with advanced user interfaces and digital capabilities that threaten to redefine banking’s role. Big tech has the advantage of using deep customer relationships and vast data sets to compete. Customers will follow, especially younger ones, with a recent survey finding that 73% of millennials would consider banking with a tech firm. 

This trend isn’t all doom and gloom for financial institutions. While it’s driving up competition, it’s also creating opportunities for mutually beneficial partnerships. The move toward “open banking” and the proliferation of APIs have made it easier for financial institutions to connect their systems to third parties. As such, some fintechs are becoming key partners, providing ancillary solutions and raising the bar in terms of customer experience. 

But it’s once again bigger institutions that are leading the way: 80% of organizations with more than $10 billion in assets have already formed such partnerships; only 43% with less than $10 billion have done the same. The majority of credit unions fall in the latter group, leaving them in a vulnerable position relative to financial institutions that are investing in partnerships and rapidly innovating. 

If you still aren’t convinced that digital capabilities are now a must-have, look at company returns. Meeting customers where their preferences now lie—online, mobile, etc.—will improve customer experience, and focusing on this customer-centric culture has proven to make companies 60% more profitable than those who aren’t. 

The benefits can also be seen in terms of customer retention and increased revenue. According to a study from Fiserv and Bank of the West, attrition rates over a 15-month period showed that digital customers are 35% less likely to leave their bank than non-digital ones. That pays real dividends: consider that a 2% improvement in retention can have the same financial benefit of cutting costs by 10%. That same Fiserv study also illustrated that digital banking customers transact at a higher volume and dollar value, amounting to 13% in average monthly increases.

Key challenges for credit unions going digital 

Many credit unions have fallen behind when it comes to their digital transformation. Why? They face a number of obstacles, including:  

• Core vendor stickiness: Credit unions tend to be overly dependent on their core processing vendors. Many cores do not allow plug-and-play integrations to other systems (e.g., digital banking platforms), so credit unions are forced to use subpar solutions offered by their core. The need to use the core provider as a one-stop shop is exacerbated when price is considered. Traditional core providers bundle their offerings, making their solutions like digital banking significantly cheaper than point solutions. To make matters worse, many core platform contracts contain hefty deconversion fees and claw-back clauses for changing vendors, which can make the economics of switching difficult to justify. 
• Competing priorities: Due to other organizational needs (especially amid COVID-19), becoming a leader in digital banking often seems like an unattainable goal for many credit unions. Thus, many credit unions are trying to keep the lights on by reaching a satisfactory level of digital capabilities. Even smaller credit unions should have a comprehensive digital strategy. 
• Lack of rich data: Credit unions also often face difficulties trying to extract data from legacy cores—either because their core won’t provide it, charges a considerable amount for it, or simply doesn’t have it. 
• Investment required: The size of the initial (and potentially ongoing) investment in digital can be daunting, especially for smaller credit unions that might find it more difficult to build the business case. 
• Implementation risk: Leadership cannot justify and/or afford the potential negative consequences of implementing new systems—i.e., complex integration needs, system downtime, member dissatisfaction, or internal change management issues.

In the face of these challenges, credit unions need to remember that making digital a priority is key to their long-term success. While upfront costs and effort may be daunting, if credit unions approach digital in the right way – the payoff will be more than worth it. 

1. Focus on building out your technology architecture

Across the wider financial services industry, we often see institutions adopting new digital tools and solutions to help address discrete customer demands—but they fail to ever address the underlying digital architecture. Without a digital foundation, the potential value and scale of digital will fall flat. For instance, platforms should have:  

• Cloud-based, microservices architecture  
• APIs that allow for optimal flexibility, agility, and scalability 
• Near-perfect uptime / availability 
• Software development kit access and functionality  
• Pre-built integrations / a streamlined integration build process  
• Ability to share / integrate third-party data 
• Frequent release schedule  
• Strong reporting and analytics capabilities 

2. Discover and deliver on your customers’ priorities 

While these may vary across credit union member bases, some examples across key categories include: 

• Account management: End-to-end account opening, personalized and customizable user dashboards, aggregation across internal and external accounts 
• Security and privacy: Biometric authentication, instant account verification  
• Money management: Financial wellness tools, spend forecasting 
• Money movement: Remote deposit capture, single sign-on integrations with P2P providers 
• Self/assisted servicing: In-app communication of new enhancement releases to users, AI chatbot and video call support  
• Alerts: Customizable card controls across channels, including mobile and wearable devices

3. Listen to your customers and iterate on your ideal state 

Becoming a more digital organization will not happen overnight. We often recommend institutions relax their scope and adopt an “MVP” mindset—easier and faster to execute projects that will allow you to build, optimize, and automate over time. Listen to your customers and get their feedback frequently to ensure your digital tools are meeting their expectations. A few select examples of such tools include:  

• Marketing: Effectively use data to provide dynamic personalized marketing communications to members, enable behavior-based push notifications, and provide “next best action” recommendations for organic cross-selling 
• Underwriting: Use more than just FICO scores to make underwriting decisions; use all of the information available about a customer to understand their creditworthiness
• Customer service: Share data across channels to give customer service reps the data and tools they need to better serve members 

4. Prioritize partners aligned to your goals and values 

These partners should not only be aligned with your goals, values, culture, and strategy—they should also want to build strong, long-term relationships and provide ongoing guidance. At the same time, they should be forward-thinking, capable of leveraging the technology industry’s best practices, flexible to customization needs, and open to feedback regarding project roadmap, system development, and other important steps along the way. 

Conclusion  

Credit unions can no longer rely on in-person customer service and local engagement to beat back the tide of digital banking that has grown larger as a result of COVID-19. Advancements by big banks, the surge in industry consolidation, and the emergence of non-bank lenders only heighten the need to adopt effective digital capabilities.

The investments many credit unions made last year are promising, and the benefits of building positive digital experiences are clear and getting clearer all the time. Now is the time to get the most out of those investments and chart a course to a successful future for years to come.