Successful Credit Unions Will Make These 3 Strategic Moves in 2023

A recent survey by Cornerstone Advisors reported community bank and credit union executives were overall optimistic about the state of community banking in 2023. The report includes open-answer commentary from credit unions and community banks, most of those who were optimistic referenced less tight interest margins. More than half, 55%, were somewhat or very optimistic for 2023.

Conversely, 43% were somewhat or very pessimistic. Those who were pessimistic cited rising deposit competition boosting up cost of funds to be able to maintain liquidity. Different sides of the same coin.

At the top of credit unions’ list of concerns were interest rate environment (59%) and cost of funds (44%). I’m sure the regulators have helped to bump interest rate risk right up to the top, as they were accused of sleeping at the wheel during the last economic slump.

I wonder how these credit union executives would have responded if the question wasn’t limited to 2023?

Can credit unions become less asset sensitive? Especially given just 26% of credit union executive respondents – 8th on a list of 10 top concerns – responded that non-interest income was of concern. Given the regulatory climate and increasing competition for deposits, I would think it would be bit higher on the scale.

The new competitors in the market, namely fintechs, seem to have found a way to be less market-driven. In part, it’s because they’re leaning into the less commoditized piece of banking: experience as brand. Their UIs and business models help to differentiate and decommoditize them. Dave is just one excellent example of the less stuffy, more get-banking-stuff-done brands.

As we’ve seen, credit unions’ ranking in American Consumer Satisfaction Index has been declining for the last few years, and fell below the banks – community, national and super regional. They all held steady or increased in consumer satisfaction 2022 over 2021.

The most recent survey found that consumers felt credit unions were lacking in variety of services, ease of adding or making changes to accounts, in-branch transaction speeds, call center service, ease of understanding about accounts, competitiveness of interest rates, and numbers and locations of branches and ATMs. There’s a clear roadmap right there. 

Build an ecosystem with fintechs

Yes, everyone is telling you to partner with fintechs, because it’s expensive to do what they do so well and paying for that talent on your own would cost a pretty penny. And it takes time that the fintechs have already invested. We must admit, we’re behind the 8 ball and make the leap of faith that we can identify great fintech partners that complement our existing member service capabilities.

As fintechs are increasingly partnering with community banks, 93% of community bank users say that their bank offers extensive digital banking services to users, research from Grain Technology found. Additionally, more than three-quarters of respondents to the survey that do not currently use community banks would consider switching to one (77%). The second most important reason that would tempt them to switch were digital options available at that community financial institution.

According to McKinsey’s 2022 Digital Payments Consumer Survey, nearly 90% of Americans are using digital payments. If credit unions are truly going to be the bastions of service to average Joes and those of modest means, know that the report also said the fastest growth in digital payments is coming from emerging markets. Who can your credit union partner with that understands your and your members’ needs and how to deliver?

Because, McKinsey wrote, “The current model of universal retail banking—institutions that offer everyday deposit and payment products, along with loans, investing, and wealth management services—is unsustainable over the long term. To thrive in the new digital world, banks must reinvent themselves, focusing on businesses where they can achieve and extend market leadership. While we believe incumbent banks will continue to lead in retail banking, those running the old playbook will not survive.”

In other words, your credit union doesn’t have to be all things to all people. Pick a lane and drive it hard.

Upgrade your credit card and payments capabilities

PSCU and PYMNTS research revealed that many financial institutions are turning to partners to rev up their tech. They found more than have of credit unions were turning to consultants and CUSOs for innovation, and none too soon!

Because 27% of credit union members responded that they would change their banking relationships for product innovation, up from the 17% as recently as 2018.

“We found that 64% of CU members want their primary FIs to offer more payment capabilities, demonstrating their strong influence. In addition, 79% of the FI account holders who would switch where they bank to obtain more innovative products would like to see more payment products and services from their current providers.”

Cornerstone Advisors offered this answer in its own research, “Why are so few U.S.-based mid-size financial institutions making the investment in payments hubs (and payments modernization, in general)? We believe it’s because they aren’t looking at it from a revenue perspective. In a study from Accenture, just a quarter of respondents cited revenue growth as the primary goal of their organization’s payments modernization program.” Woah. 

S'help a member out

Focus on loyalty. James Robert Lay suggested credit unions act as their members’ “empathetic guide” on this recent interview on CU Broadcast. Members need help: Sometimes it’s your products and services, other times it’s someone willing to listen to their unique situation and offer guidance. That guidance may lead to sales or not. Help first, especially in the current economic environment when members don’t know what to do about their retirement investments or how to juggle the expenses of meds versus skyrocketing grocery bills for their families. It’s a different way to look at sales. I call it s’helping.

S'helping is an organizational mindset that is reflected across the entire organization, from 1-to-1 exchanges with members to marketing. Brand marketing helps to build your brand, which is particular important during times of economic uncertainty. That brand can be one of pushing products and not adapting or s’helping. It is absolutely not the time to let your foot off the marketing efforts. Mark Arnold commented on my LinkedIn post regarding a recent blog, Jumpstart Your Communications, “Marketing budgets are indeed tight this year, and we are advising our clients to maximize every single marketing dollar they spend. And here's the key: still invest in marketing. Now is the time to invest rather than pull back.”

100% this.

Members need to know who they can turn to right now, so keeping your brand out there as a resource is critical. Research bears out that marketing ROI in the tough times can be even better than the good ones. “For example, 60% of brands that increased their media investment during the last recession saw ROI improvements …” Analytic Partners unveiled in its study. Brands that increased media investment realized a 17% growth in incremental sales. Overall, over half of brands that increased marketing investment saw ROI growth in back-to-back years.”

It's a lot to ask of credit union leaders to take big swings in challenging economic times, but we can’t afford to be optimistic until the next time rates rise or fall. We must innovate what we do and how we do it to continue to be relevant to the modern consumer – not just of financial services, but all services. Credit unions are no longer simply compared to other credit unions or banks, or even similarly sized institutions. We compare service to service. Period. And when we as consumers think of great service, anything from personal stylist apps to the food truck that regularly sits on our corner.

Way back in the day, my family was in vaudeville. In addition to an actor, my great-great-grandfather was also a costumer. When movies came out, he adapted, not only providing wardrobes for theater and movies, but even the Roosevelts. (I found this cute story in the Washington Post about Mullane’s if you’re interested.)

The 1978 article quoting my great-grandmother, whom I barely remember because she died of a stroke on her way to work when I was 3, reads:

“I'm afraid we'll just be a memory soon. I hope we're a good one," Mrs. Hubbard says sadly. Coincidentally, I used to work in an office building at the corner of 11th & G in DC that backed to where Mullane’s once stood; it’s a coffee shop now.

The lesson in all this? Adapt or become “frayed and fragile” like a once-elegant ball gown no one’s used for decades.