Competition is coming from all directions. Credit unions must shift mindset and take steps to respond.
The competitive landscape in financial services continues to evolve as technology and consumer demands change and advance. There are more options than ever. Retaining and attracting members is getting more challenging as they shop around for services when a need arises. This could result from a lack of awareness of what their credit union offers or because competitors proactively reached out with the right offers at the right time.
Credit unions must keep several things in mind if they want to remain competitive and successful in today’s environment.
Successful Member Onboarding
More members are opening accounts through digital channels, making new account onboarding synonymous with the process of establishing digital access. Although ensuring new account holders connect to mobile channels is a fundamental part of the process, it’s far from the end of the task. Research confirms that members are particularly receptive to additional offers within the first 12 months of a new banking relationship. The onboarding process is a credit union’s best opportunity to educate checking members about the credit union’s credit products, convert new borrowers into checking and expand deposit wallet share of new checking members. Recency replaces price as the key buying driver, resulting in more cost-efficient growth opportunities.
While many credit unions are focused on member acquisition, the most-efficient source of growth across the full range of products is expanding relationships with existing members. Poor service results in higher attrition, meaning more members must be added to maintain and grow the credit union. It is more costly and time-consuming to attract and secure a new member than to retain an existing one. The most effective retention tool is proactive cross-selling. Ongoing interactions generate a wealth of data, making it easier to discern the needs of these members and respond with relevant offers. The more products a member has, the stickier the relationship.
Credit unions need to remember that members’ needs change depending on the cadence of their lifestyles. Borrowing needs change throughout the year, often driven by life events, and there’s often a drop in the inclination to buy from a given source based on how much time elapses between outreach and actual need. This demonstrates a need for credit unions to have continual proactive outreach so members are aware and educated on how the solutions offered best serve their needs. To efficiently cross- sell, credit unions must create loyalty through timely action and prompting. Waiting for a member to request information is often ineffective and opens the door to increased competition.
Continuously staying connected will enable a credit union to be top of mind when a member is actively shopping. Taking an always-on approach, facilitated by targeted digital outreach, is vital for long-term success.
Increase Loan Growth
Credit unions have been awash in deposits for years. The bigger challenge has been finding ways to put those deposits to use the most profitably.
Mortgages remain the largest category of U.S. consumer debt, but demand has dried up as interest rates have skyrocketed, plus there is an increasing share of new lending being claimed by non-traditional players, such as Rocket Mortgage and SoFi. Further complicating matters for credit unions is that outstanding credit card debt has fallen by roughly 13% from pre-pandemic levels.
The loan-to-deposit ratio is a key metric for many credit unions; overlending creates liquidity risk and the potential inability to meet short-term obligations. Not lending enough creates a drag on earnings because interest paid on outstanding loans is a primary revenue source. All these scenarios have led to a need to discover new ways to generate loans. Credit unions with excess deposits must strike a delicate balance between developing prudent loan growth and ensuring adequate liquidity.
Increase Deposit Growth
While many institutions are still trying to absorb excess liquidity, others have found themselves in a deposit retention/growth mode much earlier than they anticipated. A mistake many credit unions make in a rising rate cycle is overpaying to get “new money” in response to repricing concerns. These concerns are legitimate, but the real cost of attracting new money is often greater than the repricing cost of expanding the wallet share of existing members with more modest price propositions. Credit unions can get greater net interest margin benefit from rising rates and achieve more-sustainable long-term deposit funding through data-driven targeted outreach that promotes the right rate to the right audience at the right time.
In the current competitive environment, credit unions must be diligent in recruiting and retaining depositor relationships, cross-selling to existing members and ensuring loan growth to balance the influx of deposits. Competition is coming from all directions. With that in mind, credit unions must prepare for a shift in mindset and take steps to remain competitive and successful.
Robert Koehler is chief innovation officer with CUESolutions provider SRM (Strategic Resource Management, Inc.)