2020 Trends in the Credit Union Industry
One thing is certain: uncertainty
For credit unions, a major theme in 2020 will be how well they contend with uncertainty.
Ambiguity and insecurity will come from an evolving economic environment, emerging demographic concerns and nontraditional providers' entry into key product areas, including checking accounts by Google and credit cards from Apple. Contending effectively with uncertainty will become the hallmark of well-managed credit unions.
Here are three trends we're watching for credit unions:
1. The Amazon Effect on Banking
Amazon has set a standard for all industries, especially for its outstanding customer service and speedy delivery.
But what sometimes escapes notice is that Amazon's targeting models have made the company extremely relevant to its customers. Because Amazon is able to present the right product to the right customer at the right time, it has created a bond with its customers in an environment that is otherwise so noisy and crowded that untargeted messages often are not heard.
That level of precision and timeliness goes far beyond traditional marketing. It's one lesson from Amazon that every credit union can begin applying. And while data warehouses may facilitate the process, they alone are insufficient.
2. Improving the Operating Environment
There are many indications that the current economic expansion – historic for both its duration as well as its modest growth – is coming to an end. Whether a recession happens in 2020, there are signs that growth is slowing, which adds uncertainty to operating models.
How can your credit union prepare for a recession before it occurs?
- Identify areas of higher risk in your portfolios and reduce that risk
- Build your level of core deposit funding
- Stabilize and build member profitability by focusing on key metrics, such as the efficiency ratio, share of wallet and products per household, and use rewards to build engagement
Perhaps more importantly, focus on the degree of member subsidization you have within your credit union. Data from the Raddon Performance Analytics program for 2019 shows that, for the average credit union, just one in three member households is profitable for its financial institution. In the coming year, can your credit union raise your percentage of profitable households? Increasing that percentage from 33 percent to 40 percent, for example, may considerably insulate your organization from the risks of an economic downturn.
3. Attracting Younger Generations
Credit unions have sometimes struggled to attract younger members and associates. Most of the focus has been on millennials, but the emerging concern is Gen Z, often defined as those born between 1997 and 2012.
Gen Z is not simply a younger version of millennials; their needs and attitudes are quite different. Like millennials, members of Gen Z have a strong technology focus. But for these digital natives, technology is as critical as the air they breathe.
For credit unions, effectiveness with millennials and Gen Z will revolve around better product design and improved processes. Moving away from the one-size-fits-all mentality means designing and offering products that fit the needs of particular segments. Refined processes and ease of use are the hallmarks of nontraditional financial services providers and why they have been successful with tech-savvy younger consumers. That may mean improving your processes for completing transactions or opening accounts, for example.
Attracting younger generations as credit union employees is also important. Your perceived relevance, which is dependent at least in part on your value proposition, is key to meeting that goal. A career spent opening deposit and loan accounts may not seem very meaningful to younger generations, but helping consumers achieve financial health and independence very likely is.
Flexibility in a Time of Change
Whether facing competition from market disruptors, preparing for recession, or adapting products and processes to better accommodate a new generation, flexibility and keeping an open mind will be more important than ever for credit unions in 2020. As members expect more personalization from their financial services institutions, credit unions must be ready to answer the call.