Our experts bring you their best predictions.
Trends credit unions should be monitoring for 2023 include “COVID spending fever,” competition, deposit pricing, tax and insurance increases on escrow, and mergers.
COVID Spending Fever
One factor carrying over into 2023 is what CUES member Bill Vogeney calls “COVID spending fever.”
“There are people who are COVID-rich or want to be,” says the chief revenue officer of $9.3 billion Ent Credit Union, Colorado Springs.
“We’ve gone beyond the stimulus spending now,” he notes. That’s already spent or socked away. But many people are still spending like mad. Advances are up and growing on personal and overdraft lines. People are running out of money and tapping credit lines in unprecedented numbers.
It’s not a big chunk of Ent CU’s membership that’s affected so far, but a segment of people have gone through savings and are heavily in debt and still spending.
“Our consumer loan approval rate is dipping because we’re seeing higher debt levels compared to even 12 months ago,” Vogeney reports. “It’s a post-COVID phenomenon that is not fully recognized.”
Long-term, CU lenders face a daunting challenge—keeping up with technology-driven cultural change, explains Bill Handel, chief economist at Raddon Research, a Fiserv company, and a CUES Supplier member. “CU lenders have to think differently. They’re not competing with financial institutions that think like they do. They’re facing a new breed of lender like Rocket Mortgage and SoFi.
Those nonbank lenders appeal to young people who don’t choose a lender based solely on rates and existing relationships. They expect their banking to be simple, convenient and automated. Buy now, pay later vendors like Klarna make it simple to borrow, he notes.
“A lot of CU managers need to change how they approach lending with these new consumer experiences in mind,” Handel says.
In addition, many CUs have forgotten how to price deposits strategically, Handel charges. “They haven’t had to worry about that for almost 15 years, but with today’s inflation rate, how long will depositors be satisfied with rates that actually shrink their savings?”
Credit union leaders still base strategy on price and service quality, traditional CU strengths, Handel points out. “We live and dream in basis points, but what the emerging member demographic wants is processes that are simple and easy.”
Tax and Insurance Increases on Escrow
2023 will be a year of reckoning with taxes and insurance on escrow accounts, predicts Jason Sweeney, SVP for the real estate solution group at Allied Solutions, a CUES Supplier member based in Carmel, Indiana.
Refinancing into a 30-year fixed-rate loan at recently low rates may fix the interest rate but not the payment, he points out. The dramatic run-up in home valuations will show up in higher insurance premiums and tax payments. “People didn’t necessarily take that into account,” he notes.
CUs may be forced to make tax and insurance payments on delinquent accounts in 2023, Sweeney points out. That could amplify a liquidity challenge and add a balance sheet stress point, he adds. It could also be an operations nightmare. “Tax and insurance payments have to be made perfectly and on time,” he says.
“Some carriers are looking for a reason to depart from certain areas of the country,” he adds. “You don’t want an escrowed member dropped for non-payment. You will need the expertise to monitor those tax and insurance payments with precision—either by hiring and training people or outsourcing to a third party.” Many CUs still use antiquated programs for monitoring tax and insurance escrow payments, he says.
Shakeout and Consolidations
Will high rates and a possible recession trigger a shakeout and consolidation in the financial services field?
That doesn’t require a prediction.
“It’s real and it’s been happening all along. We’re losing 3.5% of credit unions every year,” Handel notes. The rate didn’t jump up during the pandemic or during the Great Recession. It’s consistent over time, driven by systemic forces, not episodic ones. Consolidation probably will continue at the same rate in 2023, he predicts.
A sobering long-term issue, Handel observes, is that 70% to 75% of all CU deposits are held by members over 60. The great wealth transfer is already underway. When all those deposits transfer to a younger generation, will they keep them in CUs? CUs may face a long-term liquidity crisis if they don’t appeal to younger consumers, he says.
Richard H. Gamble writes from Grand Junction, Colorado.