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What it takes for credit unions to thrive in the digital age

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As an 18-year veteran of the financial services industry, I’ve seen a lot of growth and change. From ATMs to instant credit checks to mobile banking, our business bears little resemblance to the one I entered nearly two decades ago. This change is exciting, challenging, and long overdue.

Consumers are not satisfied with the products and services most financial institutions provide. Today’s consumer has been rewired to expect more based on their experiences with other types of companies, and these new expectations are causing us to examine a very real problem: People generally just don’t enjoy interacting with their bank or credit union – they do it out of necessity and it’s treated like a chore.

Challenges for traditional FIs

The current system of banking has existed for decades. Financial institutions are heavy on paperwork and multi-step processes, have limited hours and long wait times, and tend to operate behind a cloak of unclear language and opaque concepts.

The modern banking customer expects a fully digital financial services experience that is accessible anywhere, anytime and actually solves problems for them. They view traditional sources of authority with skepticism and rely on the wisdom of the crowd to confirm or enhance any financial advice they may receive. They demand access to the services and opportunities that in previous generations have been the exclusive province of the wealthy.

Today’s consumer seeks out digital alternatives to in-person visits at a branch location to accomplish basic transactions, which means fewer people are physically making deposits and cashing checks, and there are fewer in-person conversations that could introduce them to new services. Traditional banking has relied heavily on this type of cross-selling opportunity to grow business in new areas.

All of these factors have resulted in increased consolidation across the financial services industry as regulatory costs go up and margin pressures increase. Many institutions have responded over the years by raising transaction fees, but consumers are less inclined to pay fees on services they don’t want and are beginning to have more and more options to do business elsewhere and in a nontraditional way.

Increased competition

Where banks and credit unions have fallen short, innovation has stepped in to fill the gaps. Tech companies have stormed the banking industry, offering service-based solutions that are missing in the field. Many tech companies that have jumped into the financial services industry have avoided the back office areas that entail significant regulatory complexity and instead have directly targeted ways to improve and potentially take over the customer experience. As an example, it has become very simple to sign up and use some of the new mobile payment apps to transfer money from one person to another. Often, consumers don’t even check their own financial institution’s app selection first, but instead go directly to a competitor, and when that happens the competitor has effectively jumped right in front of the institution and taken over the experience.

The movement toward banking alternatives can be traced back to a lack of trust borne out of the 2008 financial crisis, which left deep scars across multiple generations, increased regulation, and allowed startups to get their feet in the door and turn consumer finance on its head.

PayPal, Venmo and a host of others are among the disruptors who now provide services ranging from money transfers to transaction accounts, loans and more. These companies offer simple, intuitive apps, use data to customize their products and often charge minimal fees. They also aren’t always subject to the same regulations as banks and CUs. On top of all of this, they understand something far better than many traditional financial institutions do: the importance of the user experience.

There are several things we can do to embrace change and propel our industry forward:

1. Fulfill individual needs

We need to reimagine our role as educators, leaders and facilitators, rather than salespeople. Our job is not to push products, but to provide tools and make consumers feel more confident about financial management than when they walked in the door, sent their email or opened our app.

2. Embrace technology

Technology must be an ally, not a threat. Here’s what’s coming:

  • Get ready for real-time transactions. They’re already here, but need to be adopted as the industry standard. The days of waiting for a payment to “post” will soon be in the past.
  • Mobile is the new branch. Banking tools are now firmly rooted in the device you keep in your pocket. They let consumers do simple things quickly — and more complex transactions and resources are on the way. That’s good, because the user base is expected to double to 1.8 billion by the end of this year, making up more than a quarter of the global population.
  • Artificial intelligence is here to stay, and we’ve only seen the beginning of it. AI interfaces are now par for the course in automated transactions and customer service. Paired with human counterparts, chatbots allow a higher level of service to reach a greater number of people. They integrate real-time account information and personal financial data into these interactions, reducing wait times and improving customer satisfaction.

3. Provide expertise

The good news in all of this is that credit unions are uniquely positioned to leverage technology in order to offer more products and services. And our employees will rise to the challenge if we provide educational support, creating an elevated experience for — and better relationships with — our current and future members.

These initiatives couldn’t come at a better time. A J.D. Power study noted that 78 percent of U.S. banking customers want their financial institution to provide guidance, yet only 28 percent feel they get it. But when they do get it, their satisfaction — and loyalty — jumps significantly.

Ensuring member success will continue to be our top priority. Not only must we provide top-level products, but we need to put these products in context and demonstrate how they relate to consumers’ everyday lives.

Fill a greater need

Disruption is now a fact of life in every industry. What Uber has done for transit, Instacart for groceries, and Amazon for retail, PayPal, Square, Venmo and others are doing for banking. But we still have a vital role to play — nowhere else can people get comprehensive education on personal finance with the care and dedication of the credit union industry to improve the lives of the members.

It’s essential that we become partners with our members, put their needs first and make their relationships with money easier.

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