April 06, 2021 at 01:30PM

Financial institutions (FIs) have spent many years pursuing consumers who are becoming more digitally focused while also working to retain long-term customers. The pandemic is adding urgency to both efforts as FIs look to shake off the economic slump, but research shows that certain FIs, especially credit unions (CUs), are still falling short of meeting members’ innovation expectations. Failure to provide the tools that members want could be keeping some FIs from reaching key demographics.

The stakes are particularly high for CUs. PYMNTS’ February Credit Union Innovation Study found that the failure to innovate is members’ most commonly reported reason for being unhappy with their CUs. In fact, CU members are three times more likely than those who are not members to be displeased with their FIs because they have neglected to provide the latest technologies. The study also revealed that 10 percent of all dissatisfied members say their CUs do not provide ample online banking capabilities compared to just 3.3 percent of non-CU members who say the same.

Even more dismaying is that the problem appears to be growing as a greater share of members reported being more dissatisfied with their CUs’ lack of modernization last year than they did in 2019. The results point directly to the problem CUs face: They must better meet the demands of their customers to keep existing members happy and grow membership, especially among younger consumers.

Appealing To Younger Members

CUs are trying several strategies to win over younger consumers, but recent data suggests that they cannot rely on the membership of existing members’ children. Sixty percent of respondents to one survey of more than 500 credit union members ages 65 and older said that their children chose not to bank with their CUs. Only 9 percent of respondents had recommended their institutions to their children despite many having long-term relationships with their credit unions. The results of a separate FICO study were similarly discouraging, with polling indicating that millennials tend to end their relationships with CUs as they leave their parents’ homes. The study noted that roughly 20 percent of consumers younger than age 25 use credit unions, while just 10 percent of those ages 25 to 34 do the same.

The picture is a bit rosier when it comes to retaining members from older generations, however. Sixty-eight percent of respondents to the survey of members 65 and older reported banking with their credit unions for more than a decade, suggesting deeper bonds and greater loyalty. The founder and CEO of one digital banking services provider said that eliciting such loyalty from younger customers would ultimately require CUs to offer innovative products and services, such as real-time loans and mobile-based investing solutions.

Another study of almost 700 FI customers uncovered that churn within the sector is expected to increase to 22 percent in the next few years, up from 12 percent prior to the pandemic. About 75 percent of those who indicated being interested in leaving their FIs for other institutions were Generation Z consumers or millennials, further illustrating why it is important for credit unions to offer digital tools in addition to the competitive interest rates and lower fees that are considered hallmarks of the CU member experience.

Why The Right Digital Access Is Key

Credit unions are known for focusing on customer service, and members tend to be more satisfied than the customers of traditional banks. This does not mean that CUs can rest on their laurels, however, as innovation remains a driving force behind members’ decisions to seek out alternative FIs. This is especially true for younger generations, with the Credit Union Innovation Study finding that 30 percent of millennial and 31 percent of bridge millennial CU members would be highly likely to leave their credit unions for competitors that have more innovative offerings.

Recent research is also shedding light on just what CUs must do to meet these expectations. One survey found that 79 percent of U.S. consumers believe a complete digital experience is a fundamental consideration when selecting an FI, especially during the pandemic. Choosing FIs that offer digital and mobile banking access is a particularly crucial concern for customers, including more than 84 percent of those ages 18 to 54. Younger respondents also noted that CUs and banks must replace branches with digital services.

PYMNTS’ Credit Union Innovation Study also highlighted a peculiar disconnect between the innovations that CUs are launching and those their members wish to see. Seventy percent of CUs have invested in mobile banking capabilities, for example, even though only 40 percent of members are interested in them. On the other hand, members’ interest in real-time payments innovations indicates an area of unmet demand as 29 percent of members are interested in these innovations but only 15 percent of credit unions have invested in them. These gaps show that reassessing and realigning their innovation agendas to meet members’ needs could help CUs foster more loyalty and engagement in the long term.

Another answer to keeping younger members engaged could come from social media. Some enterprising credit unions are following younger consumers onto the social media channels they prefer, including newer platforms like TikTok. Myrtle Beach, South Carolina-based Carolina Trust Federal Credit Union recently began experimenting with the platform in an effort to draw younger members and lower the average age of its membership base, which is currently between 50 and 55.

Digital innovation is the name of the game for credit unions, regardless of which demographics they are aiming to win over. They must pay careful attention to their strategies to ensure that they are hitting the mark, however, especially when it comes to younger members. Rolling out real-time payment capabilities, digitally focused engagement initiatives and savvy social media outreach efforts could be what it takes to reach these members and keep them loyal for years to come.

Deep Dive: How Credit Unions Can Meet The Innovation Needs Of Members Across Generations …

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